Episode summary
"The Market Is Fragile"
The Markets
· · Hosts: Chris Hussey · Guests: John Storey
Summary
John Storey argues that markets are already defensive, heavily hedged, and surprisingly resilient despite a cluster of shocks. He says the S&P 500 has only pulled back about 5% from the highs, while Goldman Sachs research models another 5% downside to 6300 if a growth shock develops. He points to extreme positioning, a volatility panic index at 9.5 out of 10, and the tightest short macro positioning in prime since September 2023 as evidence that investors have already built in a lot of caution.
Storey thinks the Iran conflict is the key near-term risk, especially because this oil shock is broader than the Russia/Ukraine gas shock and could hit Europe through refining constraints and higher jet fuel and gasoline inputs. He also says markets may be conditioned to absorb geopolitical and macro shocks after COVID, the banking crisis, Ukraine/Russia, tariffs, and Liberation Day, which helps explain the index’s resilience.
On strategy, he favors diversification, but says the most durable themes are sectoral: the move from asset-light to asset-heavy, and the related AI “picks and shovels” trade. He highlights European financials, semiconductors, defense, data centers, and mining materials as areas where earnings and capital spending still look supportive.
Key takeaways
- Storey says the market is “already somewhat defensively positioned,” with hedging and short positioning at extreme levels.
- Goldman Sachs research models 5% S&P downside to 6300 if the current growth shock worsens.
- He thinks the Iran conflict matters most because this oil shock is much larger than the Russia/Ukraine gas shock and could pressure Europe’s refining system.
- Storey still likes the shift from asset-light to asset-heavy, saying the heavy-asset basket has outperformed the light by 25% year-to-date.
- He prefers European financials and AI “picks and shovels” like semiconductors, data centers, defense, and mining materials.
- He says US labor data and the Iran conflict are the two key things to watch in the next few weeks.
Notable quotes
“I think the market is already somewhat defensively positioned. And I think positioning is more conservative, but the market is fragile”
“our downside growth shock scenario research department has the S&P pulling back 5 percent to 6300”
“We have a volatility panic index, which is registering 9.5 out of 10”
“The second rotation theme was from asset-light to asset-heavy. And we still think that theme has an enormous amount of legs”
“I believe, the heavy asset basket has outperformed the light by 25 percent year-to-date”
How the episode opens
This is The Markets. I'm Chris Hussey and today is Wednesday, March 18th. And I'm here on the Goldman Sachs trading floor with John Storey, who is global co-head of Equities Distribution within Global Banking & Markets.
John, thanks so much for joining us. Chris, great to have you in London. Okay, John, you have been in this industry for decades.
You've seen a lot come and go. A lot of volatility in the markets today. What do you make of it?
Do you want to play offense or defense? I think the market is already somewhat defensively positioned. And I think positioning is more conservative, but the market is fragile.
And if you think about it, and it fits in the S&P pullback about 5 percent from the highs, which is generally following the path we're seeing with most of these sort of geopolitical oil shocks. So, it's already pulled back a little bit. And our downside growth shock scenario research department has the S&P pulling back 5 percent to 6300.
Putting out a 19x multiple. I think, at the moment, I'm surprised how resilient the market has been. We have definitely seen clients more conservatively positioned and hedged up.
As an example for you, if you look at our gross market value in prime, and look at our short macro products, it's the highest level we've seen on the short side since September 2023. Right? So, the 97th percentile in a five-year lookback.
So, people have got positions on and are heavily hedged. We have a volatility panic index, which is registering 9.5 out of 10. Incredibly elevated readings of volatility.
And suggesting far more turbulence beneath the hood of the S&P index. I think the biggest thing that's happened in the past couple of weeks is the financial condition index has tightened 50 basis points.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- market fragility
- sp 500 range
- investor positioning
- asset-heavy companies
- equities strategy
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “"The Market Is Fragile"” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from The Markets
The Markets, this episode and its artwork belong to Goldman Sachs. Octagon is not affiliated with the show; this page is an independent summary.
